Armenia – Index of Economic Freedom 2004
Rank: 42
Score:2.58
Category:Mostly Free
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Quick Study
Trade Policy2.0
Fiscal Burden2.3
Government Intervention2.5
Monetary Policy2.0
Foreign Investment2.0
Banking and Finance1.0
Wages and Prices3.0
Property Rights3.0
Regulation4.0
Informal Market 4.0
Population: 3,068,000
Total area: 29,800 sq. km
GDP: $2.3 billion
GDP growth rate: 12.9%
GDP per capita: $761
Major exports: diamonds, copper ore, scrap metal, machinery and equipment
Exports of goods and services: $691 million
Major export trading partners: Israel 21.0%, Belgium 18.3%, Russia 13.9%, US
8.3%
Major imports: natural gas, petroleum, mineral products, prepared foodstuffs
Imports of goods and services: $1.2 billion
Major import trading partners: Russia 16.4%, Belgium 10.2%, Israel 9.7%, US
8.0%
Foreign direct investment (net): $89 million
The Republic of Armenia remained committed to the gradual pursuit of a
democratic society and free-market economy in 2004. President Robert Kocharian,
weakened by political instability and opposition attempts to secure a
no-confidence referendum, became more willing to use authoritarian measuresagainst his
critics. The government will look to improve political and economic relations
with neighbors Russia, Turkey, and Azerbaijan; the latter two have maintained a
trade embargo with Armenia over the disputed region of Nagorno-Karabakh.
Economic policy continues to be guided by the economic and fiscal policies and the
poverty-reduction strategy developed in cooperation with the World Bank and
the International Monetary Fund. Reforms should provide improvements in the
banking sector, transparency, and enforcement of anti-corruption measures.
Privatization of state-owned enterprises, begun in 1994 following an aggressive land
privatization program in 1991, has been slow. According to the Economist
Intelligence Unit, of the nearly 900 businesses that the government has offered for
privatization, 320 were divested in 2003. Armenia’s government intervention
score is 0.5 point better this year. As a result, its overall score is 0.05
point better this year.
Trade Policy
Score:2.0
According to the World Bank, Armenia’s weighted average tariff ratein 2001
(the most recent year for which World Bank data are available) was 2.5 percent.
Most imports are free of prohibitions, quotas, or licensing, but the
government imposes a value-added tax on certain imports to support its industrial
policy, and the European Bank for Reconstruction and Development reports that
cumbersome customs procedures act as a non-tariff barrier.
Fiscal Burden
Score:2.0
The Embassy of Armenia reports that Armenia’s top income tax rate is 20
percent. The top corporate tax rate is 20 percent. In 2003, government expenditures
as a share of GDP decreased 0.5 percentage point to 18.9 percent, compared to
a 0.6 percentage point decrease in 2002.
Government Intervention
Score:2.0
The World Bank reports that the government consumed 10.1 percent of GDP in
2002. In 2003, based on data from the Ministry of Finance and Economy, Armenia
received 5.7 percent of its total revenues from state-owned enterprises and
government ownership of property. Based on the newly available, more reliable
data on revenues from state-owned enterprises, Armenia’s governmentintervention
score is 0.5 point better this year.
Monetary Policy
Score:2.0
Between 1994 and 2003, Armenia’s weighted average annual rate of inflation
was 4.01 percent.
Foreign Investment
Score:2.0
Armenia offers equal official treatment to foreign investors, who have the
same right to establish businesses as native Armenians in most sectors of the
economy. Unless specifically authorized, foreign investment is not allowed in
consumer co-operatives, collective farms, government enterprises, and
enterprises of strategic significance. The government continues to restrictownership of
land by foreigners, although they may lease it. The International Monetary
Fund reports that there are no restrictions or controls on the holding of
foreign exchange accounts, invisible transactions, current transfers, or
repatriation requirements.
Banking and Finance
Score:2.0
The central bank adopted a reform and consolidation program in 1994 after
several banks had collapsed. The banking system is improving as supervision
increases, regulation becomes more efficient, and minimum capital requirements are
increased. The Economist Intelligence Unit reports that all banks now adhere
to international accounting standards; under the revised standards, several
banks were closed, and the number of banks fell from 58 in 1994 to 22 at the
beginning of 2003. Foreign banks account for 40 percent of banking capital.The
Ministry of Finance and Economy, which regulates the insurance industry, allows
the presence of foreign insurance companies. The last state-owned bank,
Armsberbank, was sold in September 2001.
Wages and Prices
Score:2.0
According to the U.S. Department of Commerce, `The state continues to control
prices for utilities and public transportation, keeping them artificially
low. From time to time, the government conducts rationed sales of basic foods and
other consumables (sugar, powdered milk, matches, soap) to the most needy
groups at prices much lower than market prices.’ In January 2002, the Armenian
State Repository set new prices (which are used to calculate the tax on
exploitation of natural resources) for nonferrous, rare, and precious metals. At the
beginning of 2004, the government raised the minimum wage.
Property Rights
Score:2.0
Private property is guaranteed by law, but neither legal enforcement nor the
judicial system provides adequate protection. According to the Economist
Intelligence Unit, `A further consideration [for investors] is the underdeveloped
and corrupt judiciary, which is a substantial impediment to the enforcementof
contractual rights and obligations, thereby keeping business risk high.â=80=9D The
U.S. Department of Commerce reports that `the Constitution’s provisions do not
insulate the courts fully from political pressure, and in practice, courts
[are] subject to pressure from the executive and legislative branches and some
judges [are] corrupt. Lengthy public trials sometimes [are] a problem.â=80=9D The
same source also notes that Armenian courts `are becoming increasingly
independent. The Ministry of Justice is gradually limiting its involvement in civil
cases.’
Regulation
Score:2.0
A corrupt bureaucracy often applies regulations haphazardly, and political
strife hampers the progress of any reforms. The Economist Intelligence Unit
reports that `a high level of corruptionâ=80¦results in firms directing activity
underground in order to reduce their vulnerability to extortion by government
officials.’ According to the U.S. Department of Commerce, `Changes in legislation
are only rarely announced or publicly disclosed before implementationâ=80¦.
[B]ureaucratic procedures can be burdensome and time consuming when an investor
negotiates a contract with the Armenian government, as the contract may require
approval by several ministries.’ Corruption continues to affect business. The
U.S. Department of Commerce reports that `bribery is widespread andis the most
common form of corruptionâ=80¦.’
Informal Market
Score:2.0
Transparency International’s 2003 score for Armenia is 3. Therefore, Armenia’
s informal market score is 4 this year.
From: Emil Lazarian | Ararat NewsPress